India’s current account deficit widened in the July-September quarter from the previous three months as foreign direct investment moderated and overseas portfolio investors pulled money out, the Reserve Bank of India said on Tuesday.

The gap for the second quarter ended September 30 expanded to 1.6 per cent of gross domestic product, or $8.2 billion, from 1.2 per cent, or $6.1 billion, in the April-June period. However, the deficit was lower than the year-earlier quarter’s 2.2 per cent of GDP, or $10.9 billion.

The RBI said FDI flows slowed in the second quarter while net outflow of portfolio investment grew to $6.5 billion from $2.6 billion in the first quarter.

The cumulative deficit for the first half of this fiscal year narrowed to 1.4 per cent of GDP from 1.8 per cent a year earlier thanks to lower trade deficit and a marginal improvement in net invisibles, the RBI said.

The merchandise trade deficit contracted in the first half to $71.6 billion from $74.7 billion a year earlier.   

Foreign portfolio investment is likely to be dull for the third quarter as well, given the volatility due to the US Federal Reserve’s decision to increase interest rates. But FDI inflows may improve in coming quarters after the government relaxed norms in 15 sectors.

The glut in the oil market is likely to keep the current account deficit from widening further. Brent crude prices dropped below $34 for a barrel to their lowest level in almost a decade. The International Monetary Fund expects prices to dip to $20-$30 range. 

Crude oil is India’s biggest import item and low oil prices benefit the country, which purchases more than three-fourths of its crude requirements.

Aditi Nayar, senior economist at ratings firm ICRA, said current account deficit for the full year is likely to come in at $15-17 billion, or 0.8 per cent of GDP, considering the seasonal trend of a narrower deficit in the second half versus the first half and an expected softening in crude oil prices.

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